Uncategorized TYPES OF CREDIT By Mr Old Man Posted on March 16, 2010 9 min read 8 0 4,617 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUERY FROM NEVILLE D COSTA Dear Sir I have the following questions with regards to Letter of credit Q.1. I would like to know if in case of Usance letter of credit is it possible for the bank to open the Letter of credit "Available by Negotiation." If it possible please let me know what is difference it has with availabe by Acceptance and Available by Defrered payment. Q.2 Is it possible to have letter of credit Available by negotiation ristricted to a particular bank. Q.3 As a Importer I have been opening many letter of creidts, but i have never been able to understand How the banks states 41A Available By….. say for usance Letter of credit say payable at 90 days some times bank states Available by Acceptance, some times Available by Negotiation and Some time Available by Defered payment. Is there any way i can know in advance what the bank is going to state or it is the will of the bank. Regards, Neville dcosta ——————– COMMENT Dear Neville Dcosta, Regarding your queries on types of letter of credit (LC), I wish to respond as follows: 1. Is it possible for the bank to open an LC available by negotiation in case of usance LC ? It is possible but the question is whether the beneficiary or his negotiating bank accepts such a strange type of LC. Normally a usance LC can be issued in the form of an acceptance LC or in the form of a deferred payment LC. Regarding the difference between these two types of LC, please refer to my responses to your query on LC availability posted on this forum. To evidence the possibilty, I ‘d like to quote hereunder some swift fields of an LC which my bank as an advising/negotiating bank has received from Bank A in Korea: = quote =41D: Available with …. By …… ANY BANK BY NEGOTIATION 42C: Drafts at …. BENEFICIARY DRAFTS 90 DAYS AFTER B/L DATE 42A: Drawee BANK B 53A: Reimbursing bank BANK B …….. 78: Instructions to the Paying/Accepting/Negotiating Bank + BENEFICIARY TIME DRAFT SHALL BE NEGOTIATED ON AT SIGHT BASIS AND SHOULD BE FORWARDED TO THE DRAWEE BANK (BANK B). + ALL DOCUMENTS MUST BE FORWARDED DIRECTLY TO US (BANK A) IN ONE LOT BY COURIER SERVICES = unquote = By appearance, it looks like an acceptance LC as it requires time drafts (90 days after B/L date). However, it is in fact a sight LC as it allows the beneficiary to negotiate the time drafts on at sight basis. According to Mr. Abdulkader Bazara’s explanation for this type of LC, the request starts by the applicant who wants to buy on sight basis but wants the issuing bank to finance the import. But the issuing bank for some reason or other wants the financing to be executed by the nominated bank but under the protection of the issuing bank. 2. Is it possible to have LC available by negotiation restricted to a particular bank ? Yes, it is. An LC may be stipulated available by negotiation with any bank or with a named nominated bank. An LC available with any bank is called a freely negotiable LC, whereas nn LC available by negotiation with a named nominated bank is called a restricted (negotiation) LC. Negotiation under a confirmed LC is normally restricted to the confirming bank. In reality, if not requested by the export financing bank, the exporter prefers a freely negotiable LC to a restricted LC as with a freely negotiable LC, the exporter can shop around to find out the best negotiating bank which can negotiate the documents at the best price. Of course, there are still other reasons. 3. LC availability Regarding the LC availability, you may refer to my responses to your query of the same name on www.letterofcreditforum.com . Here I ‘d like to tell you by whom the availability of an LC is decided. Normally the applicant will indicate in his application for openning LC the type of LC, i.e the LC is available by negotiation of drafts at sight, by sight payment, by acceptance of time drafts or by deferred payment undertaking. In the event the availabilty of LC is not indicated in the application, normally the issuing bank will refer to the applicant’s opinion to help him decide which type of LC is appropriate. What’s more. If it is a sight LC, the exporter wishes to receive a negotiation LC rather than a sight payment LC as this type of LC may help him obtain the payment in advance right after shipment by negotiation of the drafts and/or documents with his bank. Similarly, If it is a usance LC, the exporter wishes to receive an acceptance LC rather than a deferred payment LC as this type of LC may help him obtain the payment in advance by discounting the accepted drafts at his bank or on forfaiting markets. The importer who is experienced in the market, for some reason or other, wishes to open LC available by sight payment rather than LC available by negotiation, and similarly LC available by deferred payment rather than LC available by acceptance.. Best regards, Nguyen Huu Duc …
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?